An exciting and innovative product portfolio is necessary to give authentic power to a brand and to excite customers, Heinz Traudt, head of international purchasing at BMW, told a conference of international suppliers in Switzerland.

"Our innovation strategy is to develop unique selling points for clear additional customer use in each segment", says Traudt. The first step is always the description of the properties desired by the customer, says Traudt.

BMW aims to steer its innovation process by setting targets for innovations and technologies, based on the purchase decision. BMW breaks down the types of innovation into three - firstly a "Must Innovation", which can be a legislative requirement, or because of competitive pressures, or because of a commitment made by the company.

Secondly, there is what BMW calls a "Top Innovation", which enhances the relative market attractiveness of the products and gives a unique selling point.

Thirdly, there is what it classifies as a "Breakthrough Innovation", which gives "outstanding customer value and a competitive advantage".

Simple further development of existing systems does not count as innovation, because BMW's innovation focus extends beyond product to organisation processes and management developments.

Since January 2004 BMW has been working on a new innovation management process in purchasing along two routes.

Firstly, the identification of innovation through networking with venture capitalists and innovation parks, and secondly, on the industrialisation side BMW is concentrating on its automotive partners through innovation days or closed workshops with a circle of development and purchasing people.

BMW is actively looking for technologies that can be of use through its contact with its 1,000 production parts suppliers. "Innovation scouts inform the research and development centre in Munich about the issues".

A large number of these ideas are gathered in an intranet-based databank.

BMW has also opened an open internet portal for a virtual innovation agent, which it calls VIA, for ideas to be posted.

Once the ideas are gathered, BMW operates seven innovation councils that concentrate on the top 100 ideas that look to have the best potential.

The councils evaluate the potential innovations according to their contribution to business strategy goals, such as driver experience, energy management, safety and lightweight construction.

It's better that the innovation councils concentrate on the top 100 ideas, and give them the necessary financial resources, than to follow a thousand only half-heartedly, Traudt says.

BMW is looking for at least one breakthrough technology a year, such as the company's active seating or the iDrive driver controller interface, or AFS steering systems.

BMW is looking harder at non-automotive sources of ideas, says Traudt.

Traudt says that IT technologies and mechatronics will drive a large number of innovations and already make up to more than 40% of the value added in high end cars.

To deliver these innovations BMW wants to increase its co-operation with companies that are not active in the sector already, as well as changing the way that OEMs work with suppliers.

For example for the innovative iDrive BMW started with the recognition that the cockpit is more and more difficult to look at. The solution represents a completely new control philosophy.

For development BMW worked with Alps (a Japanese automotive electronic component manufacturer), Immersion (a Californian haptic technology company) and Ideo (a Palo Alto-based engineering and design firm) on the identification of the technology, before selecting Alps for series production.

BMW's job was to drive the innovation and integrate it into the supplier network, Traudt said.

Traudt believes that new business models, such as systems co-operation, production co-operation, engineering services and more contract assembly will dramatically change the industry.

"The established hierarchy of OEMs and suppliers will remain, but the way the sector will work together will change", he says.